Two drivers, Walt and Jessie, each drive up to a gas...

Two drivers, Walt and Jessie, each drive up to a gas station. Before looking at the price, each places an order. Walt says, "I'd like 10 gallons of gas." Jessie says, "I'd like $\$ 10$ worth of gas." What is each driver's price elasticity of demand?

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Key Concepts

Price Elasticity of Demand

Price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. This concept helps determine how consumers adjust their purchase quantities in response to price fluctuations.

Perfectly Inelastic Demand

Perfectly inelastic demand refers to a situation where the quantity demanded does not change regardless of price changes. This means that the demand curve is completely vertical, and the price elasticity of demand is zero. When a driver orders a fixed number of units regardless of price, it demonstrates perfectly inelastic behavior.

Unit Elastic Demand

Unit elastic demand occurs when the percentage change in quantity demanded is exactly equal to the percentage change in price, resulting in an elasticity of -1. This means that any increase in price leads to a proportional decrease in quantity demanded, and vice versa, keeping total expenditure constant. A scenario where expenditure is held constant as prices vary exemplifies unit elastic demand.

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